Oil Prices Wobble as Traders Fear Hit From Qatar Feud, U.S. Shale

Oil prices swung between gains and losses Tuesday amid a wider financial market decline and investor concerns about increasing oil production in the U.S.

Most recently, the August contract for Brent crude, the global oil benchmark, fell 0.24% to $49.35 a barrel on London's ICE Futures exchange. On the New York Mercantile Exchange, West Texas Intermediate futures were down 0.11% at $47.35 a barrel.

Major equity markets were in the doldrums, weighing on commodities prices. Adding to oil's woes was a recent diplomatic spat in the gulf.

On Monday, global oil markets saw major swings after Saudi Arabia and three other Persian Gulf states severed diplomatic ties with Qatar, a member of the Organization of the Petroleum Exporting Countries. Saudi Arabia and others have long accused Qatar of meddling in their internal affairs and backing terrorism, allegations that Qatar has denied.

Some investors fear the political rift will affect the running of OPEC and oil and gas markets.

"You have general negative market sentiment this morning," Bjarne Schieldrop, chief commodities analyst at SEB Markets, said Tuesday.

Analysts point to a tightening of the oil supply since OPEC and other producers agreed in May to extend a deal to cut collective production by 1.8 million barrels a day. The original deal was aimed at propping up sagging oil prices and reducing the global glut of crude to below five-year averages.

Nonetheless, investors remain concerned about increasing U.S. production, with the latest data from the U.S. Energy Information Administration showing "production increasing to a four-week average of 9.3 mmb/d as of May 26," according to Morningstar. That is even though U.S. crude inventories have decreased for eight straight weeks--data from the EIA last week showed a 6.4 million-barrel drop in stocks.

A reduction in supply is taking place at the heavy sour crude end of the oil range instead of the light sweet crude end, which is being pumped in abundance by countries including Libya, Nigeria--and especially the U.S.

"The market's concern with increased shale production is that as it outpaces domestic U.S. demand, any excess crude could build inventory and undermine the OPEC market-balancing narrative," Sandy Fielden the director for oil and products research at Morningstar, said.

With that in mind, investors will watch for an estimate Tuesday from the American Petroleum Institute, which forecasts production and stock levels, as well as U.S. weekly oil data, due Wednesday.

Nymex reformulated gasoline blendstock--the benchmark gasoline contract--fell 0.07% to $1.54 a gallon on Tuesday. ICE gasoil changed hands at $433.75 a metric ton, up $2.75 from the previous settlement.

Write to Neanda Salvaterra at neanda.salvaterra@wsj.com and Jenny W. Hsu at jenny.hsu@wsj.com

(END) Dow Jones Newswires

June 06, 2017 07:48 ET (11:48 GMT)